Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, December 12, 2022

AI Summary. A permanent child allowance resembling the expanded child tax credit could reduce employment among single mothers by about 1m, according to estimates from the Chicago team. That effect would go a long way toward reversing employment gains among single mothers since the welfare policy reforms of the mid-1990s.

Scott Winship American Enterprise Institute
Date Posted:
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.@swinshi notes that @JacobBastian25’s latest research underestimates the disemployment effects of an enhanced Child Tax Credit. Scott view of the disemployment effects support Bruce Myers and @kefincorinth CTC estimates @UChicago. @aei

.@swinshi notes that @JacobBastian25’s latest research underestimates the disemployment effects of an enhanced Child Tax...

Would a permanent child allowance reduce employment among single mothers?

Core argument: The Chicago team claims a permanent Child Tax Credit expansion resembling the temporary 2021 child allowance could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing their employment gains since the mid-1990s policy reforms.

In his reconciliation of his own results with those of the Chicago team, Bastian misattributes something on the order of 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers. Relative to the Chicago team, he underestimates the disemployment of low-income single mothers by a similar amount. The evidence remains consistent with the Chicago team’s claims: a permanent expansion of the CTC that resembles the temporary child allowance created in 2021 could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing the employment gains among single mothers since the policy reforms of the mid-1990s.

Takeaways by Macro Roundup® AI

  1. The Chicago team claims a permanent Child Tax Credit expansion resembling the temporary 2021 child allowance could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing their employment gains since the mid-1990s policy reforms.
  2. Bastian misattributes roughly 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers, underestimating disemployment among low-income single mothers by a similar amount.
  3. The evidence remains consistent with the Chicago team's claims about the employment effects of a permanent child allowance, despite Bastian's reconciliation of his own results with theirs.

In Bastrain’s reconciliation of his own results with those of the Bruce Myer’s Chicago team, Bastian misattributes something on the order of 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers. Relative to the Chicago team, he underestimates the disemployment of low-income single mothers by a similar amount. The evidence remains consistent with the Chicago team’s claims: a permanent expansion of the CTC that resembles the temporary child allowance created in 2021 could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing the employment gains among single mothers since the policy reforms of the mid-1990s.

Bottom line, “…The evidence remains consistent with the Chicago team’s claims: a permanent expansion of the CTC that resembles the temporary child allowance created in 2021 could reduce employment among single mothers by about one million, an effect that would go a long ways toward reversing the employment gains among single mothers since the policy reforms of the mid-1990s….”

Scott notes three core flaws

“..In his reconciliation of his own results with those of the Chicago team, Bastian misattributes something on the order of 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers. Relative to the Chicago team, he underestimates the disemployment of low-income single mothers by a similar amount. This is one reason why Bastian’s results suggest that Corinth et al. have overestimated disemployment effects among upper-income parents..”

“…Bastian’s assumed size for the key parameter in the child allowance debates—the participation elasticity for low-income single mothers, which describes the sensitivity of their employment to changes in the return to work—is almost surely too low. The midpoint of the range of credible elasticities for this group is higher, not lower, than assumed by the Chicago team. Indeed, that midpoint is exactly the same if we only use the elasticities implied by Bastian’s own studies. That makes the Chicago team’s disemployment effects relatively conservative. Bastian’s arguments that recent studies find lower elasticities or that the elasticity for low-income single mothers has fallen substantially over time do not stand up against his own research and that of others….”

“…Of Bastian’s other attempts to invalidate the Chicago team’s results, one suffers from Bastian’s understatement of the disemployment effect on low-income single mothers, one constitutes an illogical exercise in applying averages to subgroups to show results that seem implausible, and one is a markedly imprecise back-of-the-envelope exercise that can easily be modified to reinforce the Chicago team’s results….”

Scott Winship, “How Much Would Creating a Child Allowance Reduce Work Among Parents?,” American Enterprise Institute, December 9, 2022, https://www.aei.org/research-products/working-paper/how-much-would-creating-a-child-allowance-reduce-work-among-parents/

AI Summary. US scientists at a federal laboratory achieved net energy gain in a fusion experiment, with a reaction producing about 2.5 megajoules of energy versus the 2.1 megajoules delivered by the lasers, roughly 120%. The facility uses inertial confinement fusion, bombarding a small pellet of hydrogen plasma with the world's largest laser.

Tom Wilson Financial Times
Date Posted:

.@ft reports that researchers at the Lawrence Livermore National Laboratory have achieved a net energy gain in a fusion power experiment – producing 2.5 megajoules of energy, about 120 per cent of energy used to trigger the fusion reaction.

Has a fusion experiment produced more energy than it consumed?

Core argument: Lawrence Livermore National Laboratory's fusion experiment produced about 2.5 megajoules of energy from 2.1 megajoules delivered by its lasers, roughly 120% of the input, achieving net energy gain, according to people with knowledge of the results.

The federal Lawrence Livermore National Laboratory in California, which uses a process called inertial confinement fusion that involves bombarding a tiny pellet of hydrogen plasma with the world’s biggest laser, had achieved net energy gain in a fusion experiment in the past two weeks, the people said. The fusion reaction at the US government facility produced about 2.5 megajoules of energy, which was about 120% of the 2.1 megajoules of energy in the lasers, the people with knowledge of the results said, adding that the data was still being analyzed.

Takeaways by Macro Roundup® AI

  1. Lawrence Livermore National Laboratory's fusion experiment produced about 2.5 megajoules of energy from 2.1 megajoules delivered by its lasers, roughly 120% of the input, achieving net energy gain, according to people with knowledge of the results.
  2. Lawrence Livermore National Laboratory, a federal facility in California, uses inertial confinement fusion, bombarding a tiny pellet of hydrogen plasma with the world's biggest laser.
  3. Data from the Lawrence Livermore net energy gain result was still being analyzed, according to the people with knowledge of the results.

AI Summary. The US Energy Information Administration projects utility-scale battery storage capacity will rise from 1.5 GW to 30.0 GW over five years, outpacing utility-scale solar's early expansion from under 1.0 GW to 13.7 GW. New wind and solar costs roughly $28–$30/MWh without storage versus $45–$74/MWh for natural gas, which offers higher grid value.

Gregor Macdonald The Gregor Letter
Date Posted:

.@GregorMacdonald notes a new EIA report that reports “US battery storage capacity is outpacing even the early growth of the country’s utility-scale solar capacity.”

Is US battery storage growing faster than solar's early expansion?

Core argument: The EIA expects US utility-scale battery storage capacity to rise from 1.5 GW in 2020 to 30.0 GW in 2025, outpacing the early growth of utility-scale solar.

The growth rate of US utility-scale battery storage capacity is outpacing the early growth rates seen in utility scale solar. That’s according to a new EIA outlook on grid-level storage: “The remarkable growth in US battery storage capacity is outpacing even the early growth of the country’s utility-scale solar capacity. US solar capacity began expanding in 2010 and grew from less than 1.0 GW in 2010 to 13.7 GW in 2015. In comparison, we expect battery storage to increase from 1.5 GW in 2020 to 30.0 GW in 2025.” New wind and solar + storage is probably at the current line of scrimmage with new natural gas. The former comes in around $28-$30/MWh without storage, and the latter comes in around $45-$74/MWh. But natural gas has higher value to the grid compared to wind and solar when they’re not paired with storage.

Takeaways by Macro Roundup® AI

  1. The EIA expects US utility-scale battery storage capacity to rise from 1.5 GW in 2020 to 30.0 GW in 2025, outpacing the early growth of utility-scale solar.
  2. US utility-scale solar capacity grew from less than 1.0 GW in 2010 to 13.7 GW in 2015, a slower early expansion than the EIA projects for battery storage.
  3. Wind and solar without storage come in around $28–$30/MWh versus roughly $45–$74/MWh for new natural gas, though natural gas has higher value to the grid than wind and solar unpaired with storage.

AI Summary. Estimates of global new liquidity show three-month annualized growth in the monetary base ticking up slightly after falling to its lowest level since the global financial crisis, with major advanced economies rebounding from negative growth as a falling US dollar eases conditions worldwide, suggesting a pivot away from tighter money may be under way.

John Authers Bloomberg
Date Posted:
Is Database:
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.@johnauthers reports that we may have seen a trough in global liquidity, according to data from Crossborder Capital.

Is global liquidity growth turning up after reaching post-crisis lows?

Core argument: Balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms but rising 2.7% in US dollar terms.

The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way.

Takeaways by Macro Roundup® AI

  1. Balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms but rising 2.7% in US dollar terms.
  2. Global liquidity growth, measured as three-month annualized growth in the monetary base, has ticked up slightly after falling to its lowest level since the global financial crisis, per Crossborder Capital estimates.
  3. Liquidity growth in the major G10 economies has picked up from negative territory, helped by the fall in the US dollar, which eases conditions broadly because many countries use dollar financing, raising the possibility that a pivot away from tighter money is under way.

“…The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way…”

John Authers, “The Temptation to Call the End of Inflation,” Bloomberg, December 11, 2022, https://www.bloomberg.com/opinion/articles/2022-12-12/john-authers-calling-the-end-of-inflation-and-buying-china?sref=U3dOGIDF

The Temptation to Call the End of Inflation

Lead Us Not Into Inflation

What have we got to be afraid of? The 2022 drama of the word’s fight against the return of inflation is about to reach its final act. After the US consumer price index on Tuesday, the Federal Reserve holds its last monetary policy meeting for the year on Wednesday, to be followed the next day by the European Central Bank, Bank of England, Swiss National Bank, and Norway’s Norges Bank. Then finally, with any luck, we can all enjoy the World Cup final and send the world into mothballs for the Christmas and New Year holidays.

So where do we stand? Inflation this year far exceeded any estimate, as did the monetary policy response (at the turn of the year, fed funds futures predicted the fed funds rate would hit 0.82% after this week’s meeting; now that market is braced for 4.35%). But after the ghastly surprise of 2022, markets again are coalescing around a view that price rises will imminently come under control. That is clear if we look at implied inflation rates from the swaps market (available on the terminal), which suggest that CPI will be back below 3% by next summer:

Why might they think this? We can answer that first by reference to the broader global picture, and then by looking more closely at the nitty-gritty of central banks’ provision of liquidity to the markets. For the case that it’s reasonable to expect inflation to fall next year, consider this schematic illustration from Academy Securities’ Peter Tchir:

Don’t spend any time on the precise numbers, or the way the different factors have been weighted; this is meant as an aid to thought and conjecture rather than anything precise. Inflation had many driving factors behind it. Among the most important were: The Fed’s expansive monetary policy in 2020 and 2021 (“The Fed” above); the fiscal stimulus administered to tide companies and individuals through the pandemic (“Stimulus”); stresses on global supply chains as businesses began to reopen; the war in Ukraine; and the bubbly behavior that was fostered by the brief but dramatic boom in “disruptive” stocks and cryptocurrencies. The diagram shows Tchir’s rough estimate of how important all these factors have been since the pandemic began. At this point, his model suggests that the Ukraine conflict is the only remaining factor still pushing inflation upwards. By the middle of next year, again on a very simple model, all of the previously inflationary forces will have become deflationary. Intuitively, this model does seem reasonable. It also implies, for Tchir, that the Fed has already gone too far.

If that’s concerning, we also need to look at how far the battle to tame in inflation has come. Central banks across the world have reined in liquidity this year, and the announced policy of “quantitative tightening” implies that they have much further to go, selling bonds into the market to reduce the money in circulation. However, it looks as though this may already have come to a “pivot” point. The following chart by Michael Howell of Crossborder Capital in London shows estimates of global new liquidity:

To be precise, the lines indicate the three-month annualized percentage growth in the monetary base. Globally, growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies, there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms but rising by 2.7% in US dollar terms. Thus, it is possible that a pivot away from tighter money is already under way.

The weakening of the dollar can be viewed as a response to implicit easing by the Fed, or it might also have been driven by an increasing belief that inflation really has been licked, and that tightening will soon go into reverse. By trying to anticipate this, the foreign exchange market almost delivers some degree of easier money as a self-fulfilling prophecy. Even if the Fed has already tightened too far, then, it’s possible that markets are already working to blunt the impact on the economy next year. To quote Howell of Crossborder Capital: ‘The US Federal Reserve looks to be leading the cycle once again. Having been the first to tighten starting from around this time last year, recent data suggest that the Fed’s QT cycle is close, or even already at, its nadir. Interest rates are likely to go on rising into 2023, albeit at a slower pace as upward pressure on prices abates, but quantitative policy looks to be changing direction already. The US dollar is responding. From its recent peak levels, it has lost some 14% versus sterling, around 10% against the euro and yen, and 5% versus the renminbi. While other Central Banks may lag the Fed once again, the depreciation of the US dollar will help. Its strength during 2022 has forced EM Central Banks to tighten to underpin their own currencies and has exacerbated already strong inflationary pressures in Western economies. The positive effect is already evident in aggregate policy liquidity growth expressed in US dollar terms. This is now gently expanding having been in negative territory for the last 12 months.”

A broader question concerns the pressures that sustain longer-term inflation. Many of the big global trends driving prices higher have turned, but consumers and businesses across the world have begun to growing accustomed to rising prices. What risk does this create of a self-perpetuating cycle of rising wage demands and rising prices? That’s an imponderable question, but the continuing strength of the US labor market suggests that inflation isn’t beaten yet. Last week, brought publication of the Atlanta Federal Reserve’s Wage Tracker figures for November, which are based on census data and allow a granular look at pay increases across the US.

Average hourly earnings data from the Bureau of Labor Statistics at the beginning of this month also suggest that it’s premature to call a top on rising wages:

We’re about to receive a bombardment of new information about inflation. It will all be useful, but there are longer-term trends whose destination is unclear. Even if and when the central banks reach the point of not raising rates anymore, there will be plenty more uncertainties.

Buy China?

If there’s one almost universally popular call for 2023, it’s “buy China” — not just its bonds, but even its beleaguered stocks. On any simple what-goes-down-must-come-up model, this makes ample sense. China’s stock market endured almost a perfect storm in 2022: Growing trade conflict with the US, and international outrage of corporate governance, contributed to a selloff that widespread shutdowns caused by the Covid-Zero policy would likely have caused in any case. Once Chinese stocks are in a slough of despond, all good contrarians know that it is time to buy.

However, a lot of the bounce has happened in the last two months. Chinese American Depositary Receipts, as measured by the Bank of New York’s index, and Hong Kong-quoted shares covered by the MSCI China Index have more or less caught up with the MSCI All-World index. An epochal 46% fall for the ADRs at one point is now a more manageable 18% drop for the year. Meanwhile, mainland shares represented by the CSI 300 Index have also regained much ground:

Was that the buying opportunity? What case is there for renewed excitement about China? And can we be sure of the ground we stand on? This time last year, JPMorgan Chase & Co.’s much-quoted equity strategist Marko Kolanovic said: “China was a headwind for performance of various assets this year, but we believe China growth will accelerate in 2022, which should further provide support for global equities and cyclical assets.” JPMorgan’s precise prediction was a for a 38% rise in the MSCI China. As the chart shows, that didn’t happen. It’s as well to remember this when looking at Kolanovic’s outlook for China for 2023: “We remain positive on China, due to favorable monetary conditions as well as an eventual full reopening and end of Covid.” There’s certainly a much more attractively priced entry point now than there was a year ago”

Meanwhile, Christopher Wood, a veteran analyst of Asian markets who writes as GREED & Fear for Jefferies, suggests that it’s now safe to enter the water. But it’s important than he is more confident about relative performance (because he sees US earnings and the dollar as challenged), than about absolute performance in an environment that is likely to see a big public health crisis in the next few months: “The growing evidence of further closet Covid easing this week is clearly bullish for Chinese equities and increases the chance that the emerging market asset class has made a major bottom against both the S&P500 and the MSCI World Index. This is particularly the case given the positive earnings upgrade potential for several Asian markets next year and the risk of earnings downgrades in the US in 2023. Global asset allocators should increase their allocation to emerging markets if they agree with GREED & fear’s base case, namely that monetary tightening expectations and the US dollar have peaked.”

There’s a big currency element to this. China’s yuan has enjoyed a dramatic resurgence in the last two months, driven both by lower yields in the US and hopes that post-Covid opening is real and imminent. It’s dropped below 7.0 per dollar — a level that has caused major political tensions in the past — after one of its strongest appreciations in decades:

In its own right, a rebound after a major selloff makes sense for the yuan. But all the China bulls might take note that this big shift has already happened, and might easily reverse if the post-Covid resumption does not go as hoped. It’s worth heeding these words from Marc Chandler of Bannockburn Global Forex: “The US 10-year yield premium over China topped in late October at slightly more than 150 bp. It fell to almost 50 bp last week before settling around 65 bp. Investors have been eager to believe the Covid pivot, but the risk is that they have gotten ahead of themselves. Of course, less testing will generate less detected cases but there will be other signs of rising infections and strains on the healthcare system. That said, even if one wants to accept these developments at face value, the move is too far too fast. The yuan’s surge offers an opportunity to those who are looking for an opportunity to hedge or reduce CNY exposure.”

China is plainly a more interesting investment opportunity than it was 12 months ago. But, just as then, the case might not be quite as clear as it seems.

AI Summary. Corporate deleveraging is cyclical, with a higher proportion of companies paying down debt when the economy slows and spikes in recessions. Among the decile of companies most likely to deleverage, the share that actually paid down debt stayed within a 60%–80% band across a 50-year sample spanning inflation spirals, stock bubbles, and financial crises.

Brian Chingono Verdad
Date Posted:

Brian Chingone of @verdadcap notes that deleveraging is cyclical, with firms paying down debt as the economy slows.

Does corporate debt paydown follow a predictable pattern across economic cycles?

Core argument: Among Decile 10 companies with the highest likelihood of deleveraging, actual deleveraging outcomes stay within a consistent 60–80% band over a 50-year sample spanning inflation spirals, stock market bubbles, and financial crises.

Deleveraging is cyclical, with a higher proportion of companies paying down debt when the economy is slowing down. The figure above illustrates this process among Decile 10 companies that have the highest likelihood of deleveraging. The solid line represents actual deleveraging, and we can see spikes in the proportion of companies that pay down debt during recessions. Another important implication of the chart above is that deleveraging outcomes in the top decile remain within a consistent band between 60% and 80% over a 50-year sample that includes a range of macro environments, from inflation spirals to stock market bubbles to financial crises.

Takeaways by Macro Roundup® AI

  1. Among Decile 10 companies with the highest likelihood of deleveraging, actual deleveraging outcomes stay within a consistent 60–80% band over a 50-year sample spanning inflation spirals, stock market bubbles, and financial crises.
  2. Deleveraging is cyclical, with a higher proportion of companies paying down debt when the economy slows, and actual deleveraging spikes during recessions.

AI Summary. Wealthy mainland Chinese moving assets out of China account for up to half of the increase in Singapore-based single-family offices, private wealth managers for rich individuals and their relatives, whose numbers have nearly tripled since the coronavirus pandemic began to an estimated 1,500. Singapore has tightened rules with higher minimum capital and hiring requirements.

Mercedes Ruehl and Leo Lewis Financial Times
Date Posted:

Mainland Chinese moving assets out of China account for half of the 1,500 Singapore-based single-family offices. @ft

Mainland Chinese moving assets out of China account for half of the 1,500 Singapore-based single-family offices. @ft

Are wealthy Chinese driving Singapore's family office boom?

Core argument: Singapore-based single-family offices have risen nearly threefold since the start of the coronavirus pandemic, totaling as many as 1,500 by some estimates.

Wealthy mainland Chinese moving assets out of President Xi Jinping’s China account for up to half of a rise in Singapore-based single-family offices — the private wealth management firms set up for rich individuals and their relatives. Numbers have jumped nearly threefold since the coronavirus pandemic began and, according to some estimates, now total as many as 1,500. Caught by surprise by the surging numbers of family office funds, Singapore’s government this year tightened the rules, with higher minimum capital and hiring requirements.

Takeaways by Macro Roundup® AI

  1. Singapore-based single-family offices have risen nearly threefold since the start of the coronavirus pandemic, totaling as many as 1,500 by some estimates.
  2. Wealthy mainland Chinese moving assets out of Xi Jinping's China account for up to half of the increase in Singapore-based single-family offices.
  3. Singapore's government, caught by surprise by the surging number of family office funds, tightened the rules with higher minimum capital and hiring requirements.

AI Summary. Japan and the Netherlands agreed in principle to join the US in restricting exports of advanced chipmaking equipment to China, creating what would amount to a near-total blockade on China's ability to buy the tools needed for leading-edge chips. Japan's Tokyo Electron and Dutch lithography maker ASML are critical suppliers alongside US firms Applied Materials, Lam Research and KLA.

Takashi Mochizuki, Cagan Koc, and Peter Elstrom Bloomberg
Date Posted:

In what @bloomberg describes as “a near-total blockade,” Japan and the Netherlands have “agreed in principle” to join new export controls on China, which would limit access to equipment from Japan’s Tokyo Electron Ltd and the Dutch lithography firm ASM.

In what @bloomberg describes as “a near-total blockade,” Japan and the Netherlands have “agreed in principle” to join new...

Will allies joining US export controls block China's chipmaking equipment access?

Core argument: Japan and the Netherlands have agreed in principle to join the US in tightening export controls on advanced chipmaking machinery to China, according to people familiar with the matter.

Japan and the Netherlands have agreed in principle to join the US in tightening controls over the export of advanced chipmaking machinery to China, according to people familiar with the matter, a potentially debilitating blow to Beijing’s technology ambitions. The three-country alliance would represent a near-total blockade of China’s ability to buy the equipment necessary to make leading-edge chips. The US rules restricted the supply from American gear suppliers Applied Materials Inc., Lam Research Corp. and KLA Corp. Japan’s Tokyo Electron Ltd. and Dutch lithography specialist ASML Holding NV are the two other critical suppliers that the US needed to make the sanctions effective, making their governments’ adoption of the export curbs a significant milestone.

Takeaways by Macro Roundup® AI

  1. Japan and the Netherlands have agreed in principle to join the US in tightening export controls on advanced chipmaking machinery to China, according to people familiar with the matter.
  2. The three-country alliance would represent a near-total blockade of China's ability to buy the equipment necessary to make leading-edge chips, a potentially debilitating blow to Beijing's technology ambitions.
  3. US rules restricted supply from Applied Materials, Lam Research and KLA, leaving Japan's Tokyo Electron and Dutch lithography specialist ASML as the two other critical suppliers needed to make the sanctions effective.

Tuesday, December 13, 2022

AI Summary. US consumer prices excluding food and energy rose 0.2% in a month and 6% from a year earlier, below the 0.3% monthly increase economists surveyed had expected. Overall consumer prices rose 0.1% monthly and 7.1% annually, as lower energy prices offset rising food costs.

Reade Pickert Reade Pickert Bloomberg
Date Posted:

According to the new CPI report, Core-CPI rose by 0.2% in November to 6% year-over-year, coming in under the 0.3% median estimate of a @Bloomberg survey of economists.

Is core inflation slowing more than economists expected?

Core argument: Core CPI, excluding food and energy, rose 0.2% in November and 6% from a year earlier, according to a Labor Department report, below the 0.3% monthly increase economists surveyed by Bloomberg had expected.

Excluding food and energy, the consumer price index rose 0.2% in November and was up 6% from a year earlier, according to a Labor Department report Tuesday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure. The overall CPI increased 0.1% from the prior month and was up 7.1% from a year earlier, as lower energy prices helped offset rising food costs. The median estimates in a Bloomberg survey of economists called for 0.3% monthly increases in both the core and overall measures.

Takeaways by Macro Roundup® AI

  1. Core CPI, excluding food and energy, rose 0.2% in November and 6% from a year earlier, according to a Labor Department report, below the 0.3% monthly increase economists surveyed by Bloomberg had expected.
  2. The overall CPI increased 0.1% in November and 7.1% from a year earlier, as lower energy prices helped offset rising food costs, against a median forecast of a 0.3% monthly gain.
  3. Economists see core CPI as a better indicator of underlying inflation than the headline measure.

AI Summary. An alternative core consumer inflation measure that substitutes spot rents from private sources such as Apartment List and Zillow shows core inflation at its lowest in several years. The author argues this is not a good cost-of-living gauge but may better indicate where inflation is heading, and that some of the improvement is probably transitory.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman on today’s CPI report, which saw Headline CPI up ticking 0.1% and Core CPI 0.2%. “Some of this good news is probably transitory. But still a lot of good news.”

Do spot rents show core inflation at its lowest in years?

Core argument: Jason Furman's adjusted core inflation measure, which substitutes spot rents from Apartment List and Zillow for all rents, shows the lowest core reading since the summer of 2021, which turned out to be a false dawn.

Terrific CPI report. This is my own concept that swaps in spot rents for all rents using the private measures from Apartment List and Zillow. This is NOT a good measure of the cost of living but may be a better way to think about where inflation is going. Overall lowest core since what turned out to be the false dawn in the summer of 2021. I feel better about it now because of what we’re seeing with commodity prices, supply chains, inventories, and housing. Some of this good news is probably transitory. But still a lot of good news.

Takeaways by Macro Roundup® AI

  1. Jason Furman's adjusted core inflation measure, which substitutes spot rents from Apartment List and Zillow for all rents, shows the lowest core reading since the summer of 2021, which turned out to be a false dawn.
  2. Furman describes the spot-rent measure as not a good gauge of the cost of living but possibly a better way to think about where inflation is going.
  3. Furman cites commodity prices, supply chains, inventories, and housing as reasons he feels better about the reading, while noting some of the good news is probably transitory.

AI Summary. Core consumer price inflation excluding shelter has slowed to 5.2% year over year from 5.9% the prior month, and fell at a 1.5% annualized rate on a one-month basis. The author argues inflation will ease faster than the Federal Reserve expects and that a pause in rate hikes should be considered.

Bill McBride Calculated Risk
Date Posted:

.@calculatedrisk notes that excluding shelter, the annualized one-month change in Core-CPI was negative in both October and November and suggests inflation is easing faster than the Fed currently is projecting.

Is core inflation excluding shelter slowing enough to justify a rate pause?

Core argument: Core CPI excluding shelter rose 5.2% year-over-year in November, down from 5.9% in October.

This graph shows the year-over-year change in Core CPI ex-Shelter (blue) and the one-month change annualized (red). The year-over-year change was at 5.2% in November, down from 5.9% in October. And the annualized one-month change was negative in both October and November! Core CPI ex-shelter fell at a 1.5% annual rate in November. My view is inflation will ease quicker than the Fed currently expects, and a pause in rate hikes should be considered.

Takeaways by Macro Roundup® AI

  1. Core CPI excluding shelter rose 5.2% year-over-year in November, down from 5.9% in October.
  2. Core CPI excluding shelter fell at a 1.5% annual rate in November, with the annualized one-month change negative in both October and November.
  3. The author argues inflation will ease faster than the Federal Reserve currently expects and that a pause in rate hikes should be considered.

AI Summary. Global public and private debt reached a record $235tn while falling to 247% of world economic output, according to International Monetary Fund data — 10 percentage points below the prior year's level but the second-highest share on record.

Ana Monteiro Bloomberg
Date Posted:

The US’s debt-to-GDP ratio dropped last year to 128% from a peak of 135% in 2020, but remains well above the pre-pandemic level of 109%, according to new research from the IMF. @IMFNews @bloomberg

Is global debt falling relative to economic output?

Core argument: Total global public and private debt fell to 247% of global GDP last year, 10 percentage points below 2020 but still the second-highest reading in history, according to IMF data.

While total public and private debt hit a record $235 trillion last year, it plummeted when expressed as a percentage of economic output, which rebounded last year after the steep Covid-19 recession of 2020. Total debt fell to 247% of global gross domestic product last year, IMF data showed. That’s 10 percentage points less than in 2020 but is still the second-highest reading in history.

Takeaways by Macro Roundup® AI

  1. Total global public and private debt fell to 247% of global GDP last year, 10 percentage points below 2020 but still the second-highest reading in history, according to IMF data.
  2. Total world debt reached a record $235 trillion last year even as the debt-to-GDP ratio declined, with economic output rebounding from the steep Covid-19 recession of 2020.
  3. The global debt-to-GDP ratio remains above its pre-Covid level despite falling from its 2020 reading.

AI Summary. U.S. regression results show a high correlation between wage growth and productivity growth by skill level: productivity in high-education industries grew over .34 log points versus .20 in low-education industries, while wages grew .26 and .24 log points respectively. The authors argue these productivity differences are more than sufficient to explain the faster wage growth of more educated workers.

Edward Lazear, Kathryn Shaw, Grant Hayes and James Jedras National Bureau Of Economic Research
Date Posted:
Is Database:
Database

According to research published by @NBER, higher productivity growth in 1989-2017 “is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.”

Does productivity growth by skill explain faster wage growth for educated workers?

Core argument: Productivity in U.S. high-education industries grew by over 0.34 log points between 1989 and 2017, versus 0.20 log points in low-education industries over the same 30-year period.

U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.

Takeaways by Macro Roundup® AI

  1. Productivity in U.S. high-education industries grew by over 0.34 log points between 1989 and 2017, versus 0.20 log points in low-education industries over the same 30-year period.
  2. Wages grew 0.26 log points in high-education industries and 0.24 log points in low-education industries during 1989–2017, a narrower gap than the corresponding difference in productivity growth.
  3. U.S. regression results show a high implicit correlation between the rise of wages by skill level and the rise of productivity by skill level, suggesting productivity growth differences are more than sufficient to explain the greater wage growth of more educated workers.

Higher productivity growth in 1989-2017 “is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers….U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers…”

Key Conclusions

1. “Using economy-wide data, over a long span of time and across countries, aggregate productivity gains appear to be passed on as aggregate wage gains.”

2. “A rising tide lifts all boats. High, middle, and low wage earners experience growth in wages when productivity grows for the aggregate economy.”

3. “The industries that have experienced the most rapid growth in productivity are those that use the most skilled and educated workers.”

4. “Thus, educated, and thus skilled. workers have also enjoyed the most wage growth and productivity growth over time, which is consistent with productivity increases being the source of wage growth rather than primarily monopoly power, institutions, taxes, or other policies.”

“…In sum, it is well known that the wage distribution has spread out more over time – the 90th percentile of wages has grown more than the 50th percentile of wages. This is also true of the productivity distribution. It has stretched out. Using our proxy for productivity by education level, productivity among more educated workers is higher and has grown more rapidly than productivity of less educated workers. This is consistent with growing wage dispersion, where the wages of highly educated workers have pulled away from wages of less educated workers….”

Their Evidence

Productivity and Wages By Worker Skill Levels

Note they use education as a proxy for skill, “…we are going to use education as a proxy for skill, assuming the highly educated are more skilled….”

“…The heart of the analysis is an examination of three-digit industry data to infer productivity growth by skill level in order to explain wage growth by skill level. We start by looking at the determinants of productivity levels as a function of skill, and then turn in subsection B to the determinants of productivity growth rates as a function of skill. Education is used as the primary measure of skill. The most important finding regarding the spreading out of the productivity distribution over time is summarized in Figure 9. We use data on the forty 3-digit industries for which complete productivity, wage and education data are available over the period 1989-2017. Industries are ranked by their skill level, or by their educational level. Figure 9 compares the productivity growth and wage growth, from 1989 to 2017, for the “low education in 1989” (blue bars) industries to the productivity growth and wage growth for the “high education in 1989” (red bars) industries. Productivity in the high-education industries grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries grew only .20 log points during that same 30-year period (the two bars on the left side of Figure 9). The same pattern holds for wages, but not with the same force. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear in Figure 9 that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. Productivity grew considerably more for the more highly educated. This simple comparison in Figure 9 suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers….”

“…Overall, productivity gains for the highly skilled across industries have been greater than the wage gains for the highly skilled. Regression results replicate the simple results in Figure 9….These results tell us that the spreading out over time of the wage distribution across skill groups of workers is concurrent with the spreading out of the productivity distribution across skill groups. Given the magnitudes of the coefficients, if wages were a direct function of productivity, the wages of the highly educated would have risen even more over time….Wages have spread out over time, but productivity has spread out even more. Generally, the least educated workers have experienced the poorest wage growth from 1989 to 2017. The change in log real wage for those without any high school was -.04 over the period while those with graduate education enjoyed gains of .07 in logs. The least educated workers have also experienced the poorest productivity growth, based on the industry-based estimates of productivity by education level. Overall, the differential growth in productivity across education levels exceeds the differential growth in wages. This is most easily seen in the columns 8 and 9 of Table 6….”

Conclusions

“…Looking across people, we also find that increases in aggregate productivity, or in GDP per person, increase wages for those earners at the lowest and at the highest parts of the wage distribution, or at the 10th and 90th percentiles of pay. This implies that increases in aggregate productivity are shared by earners at all skill levels, and this applies across countries….Thus, wages have spread out over time and productivity has spread out over time. Or, the main conclusion is that changes in productivity at different educational levels are more than sufficient to account for changes in the wage distribution….”

Edward Lazear, Kathryn Shaw, Grant Hayes and James Jedras, “Productivity and Wages: What Was the Productivity-Wage Link in the Digital Revolution of the Past, and What Might Occur in the AI Revolution of the Future?” National Bureau Of Economic Research, December 2022, https://www.nber.org/papers/w30734

AI Summary. China is preparing a support package of more than 1tn yuan ($143bn) over five years for its semiconductor industry, consisting mainly of subsidies and tax credits, according to sources. Most of the assistance would subsidize Chinese firms' purchases of domestic chipmaking equipment, chiefly by fabrication plants.

Julie Zhu Reuters
Date Posted:

.@Reuters reports that China will shortly announce a $143B package to support their semiconductor industry, largely via subsidies for the purchase of domestically-produced semiconductor equipment.

.@Reuters reports that China will shortly announce a $143B package to support their semiconductor industry, largely via...

Is China subsidizing domestic chipmaking equipment purchases to counter export controls?

Core argument: China is preparing a support package of more than 1 trillion yuan ($143 billion) for its semiconductor industry over five years, three sources said, as a step toward chip self-sufficiency and a counter to U.S. curbs on its technological advances.

China is working on a more than 1 trillion yuan ($143 billion) support package for its semiconductor industry, three sources said, in a major step towards self-sufficiency in chips and to counter U.S. moves aimed at slowing its technological advances. Beijing plans to roll out what will be one of its biggest fiscal incentive packages over five years, mainly as subsidies and tax credits to bolster semiconductor production and research activities at home, said the sources. The majority of the financial assistance would be used to subsidize the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said.

Takeaways by Macro Roundup® AI

  1. China is preparing a support package of more than 1 trillion yuan ($143 billion) for its semiconductor industry over five years, three sources said, as a step toward chip self-sufficiency and a counter to U.S. curbs on its technological advances.
  2. The Chinese package, one of Beijing's biggest fiscal incentive programs, would be delivered mainly as subsidies and tax credits to bolster domestic semiconductor production and research, according to the sources.
  3. Most of the financial assistance would subsidize Chinese firms' purchases of domestic semiconductor equipment, primarily by fabrication plants, the sources said.

AI Summary. The retired share of the US population stood 1.5 percentage points above its pre-pandemic trend, with roughly 3.5m retirees accounting for nearly all of the shortfall in labor force participation and about 2.1m counted as excess retirements. Because most excess retirees are 65 or older, the elevated retired share is unlikely to reverse soon.

Joshua Montes, Christopher Smith, and Juliana Dajon Federal Reserve Board
Date Posted:
Is Database:
Database

The retired share of the US population was 1.5pp above pre-pandemic trend in Oct 2022, with 3.5mm retirees accounting for nearly all of the shortfall in LFP rates.

Do excess retirements explain most of the shortfall in labor force participation?

Core argument: The retired share of the US population stood 1.5 percentage points above its pre-pandemic trend in October 2022, with 3.5m retirees accounting for nearly all of the shortfall in labor force participation.

In October 2022, the retired share of the US population was 1.5 percentage points above its pre-pandemic trend, with 3.5m retirees accounting for nearly all of the shortfall in Labor Force Participation [LFP] rates. Despite some recovery in LFP since the pandemic's onset, it remained 1.5 percentage points below February 2020 levels. The increase in retirements, driven by the aging Baby Boomer cohort, was exacerbated by the pandemic, resulting in excess retirements of about 2.1m people. This surge in retirements is unlikely to reverse soon, as most excess retirements are among those aged 65 and older, who would likely retire in greater numbers regardless. Consequently, the retired share may remain elevated, impacting LFP rates and posing challenges for economic policy and labor market dynamics.

Takeaways by Macro Roundup® AI

  1. The retired share of the US population stood 1.5 percentage points above its pre-pandemic trend in October 2022, with 3.5m retirees accounting for nearly all of the shortfall in labor force participation.
  2. US labor force participation remained 1.5 percentage points below its February 2020 level despite partial recovery, with excess retirements of about 2.1m people attributed to an aging Baby Boomer cohort and exacerbated by the pandemic.
  3. The retirement surge is unlikely to reverse soon because most excess retirements are among people aged 65 and older, who would likely retire in greater numbers regardless, leaving the retired share elevated.

In October 2022, the retired share of the American population was 1½ percentage points above its pre-pandemic trend. These 3.5 million workers account for essentially all of the shortfall in labor force participation rates., “…Despite some improvement in the labor force participation rate for the working-age population since the early stages of the pandemic, the LFPR in October 2022 remained nearly 1½ percentage points below its pre-pandemic, February 2020 level (after making adjustments for changes in population weights introduced from the 2020 Census). The importance of retirements in accounting for this shortfall is illustrated in Figure 1, which shows the percentage of the working-age population that is not in the labor force for different reasons (black line) relative to February 2020, based on responses to the Current Population Survey. While earlier in the pandemic, factors other than retirements were an important contributor to elevated non-participation (such as non-participation while caregiving, the orange line), the percent of the population that was not in the labor force and retired (the “retired share”) has steadily increased and in October 2022 was almost 1½ percentage points above its pre-pandemic level, representing an increase of more than 3½ million retirees and accounting for essentially all of the total shortfall in the LFPR….”

The Great Retirement Boom": The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation: Extended Excerpt Image 1

The Evidence

The pre-pandemic trend, “…Even in the absence of the pandemic, the retired share would likely have risen, albeit more gradually, due to shifts in the age distribution of the population toward ages traditionally associated with higher retired shares (primarily, the movement of the Baby Boomer cohort into older ages). As one illustration of the importance of population aging, Figure 2 plots the retired share (solid line) alongside a counterfactual trend (dashed line)….”

“…. This trend is an estimate of how the retired share would have evolved in the absence of the pandemic and is derived by assuming the continuation of pre-pandemic, age-specific trends in retired shares, assuming the state of the business cycle remained similar to pre-pandemic levels, and accounting for the actual changes in the age distribution over this period (in section III, we discuss in more detail the calculation of this and other counterfactual retired shares). Over the five years prior to the pandemic, the retired share increased about 0.2 percentage point per year, and plausibly would have continued increasing at a similar pace in the absence of the pandemic. As of October 2022, the retired share remained 0.6 percentage point above the pre-pandemic expected trend, or about 1.6 million people (Figure 2). This gap between the actual and expected lines is an estimate of “excess retirements,” and the excess retirements gap remains sizeable. In fact, the retired share was slightly below trend just prior to the pandemic (about 0.2 percentage point), implying that excess retirements as a share of the population have increased by about 0.8 percentage point since February 2020, or about 2.1 million people. That increase in excess retirements explains a little more than half of the 1.4 percentage point increase the total retired share since February 2020, whereas the increasing expected retired share explains the rest (see Figure 3)….”

“…Thus, less than half of the increase in the retired share to date would likely have occurred even in the absence of the pandemic, suggesting that more than half of the current LFPR shortfall is a direct result of the pandemic on retirement….First, as discussed above, more than half of the increase in the retired share relative to February 2020 is due to an increase that would have been expected in the absence of the pandemic. Second, about two-thirds of the total increase in the excess retired share is attributable to those who were age 65 and older at the start of the pandemic, with a particularly sharp increase in excess retirements among those age 70 and older. The remaining one-third of the increase in the excess retired share is attributable to those age 55 to 64 when the pandemic began. Third, there is also substantial heterogeneity across education, race, and ethnic groups, with retired shares for those age 65 and older increasing more than expected for Whites relative to Blacks and Hispanics, and for those with a college education relative to those without….…Because the retired share has remained significantly elevated since increasing substantially at the start of the pandemic and has shown little sign of converging towards its ex-pandemic counterfactual, it may take some years for retirement behavior to normalize relative to pre-pandemic norms and for the retired share of the population to converge toward what it would be in the absence of pandemic-related influences. We view it as unlikely, however, that the retired share will fall substantially towards its pre-pandemic trend and that those who retired early will return to the labor force in large numbers, since most of the excess retirements are concentrated among people who are 65 and older who (given their age) would likely be retiring in greater numbers anyway over the next few years. That assessment is supported by the stabilization of the unretirement rate at its pre-pandemic level, well below the level it would need to reach for the retired share to fall substantially…”

Joshua Montes, Christopher Smith, and Juliana Dajon, " "The Great Retirement Boom": The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation,"Federal Reserve Board, November 2022, https://www.federalreserve.gov/econres/feds/the-great-retirement-boom.htm

Brandon Adams Comment:"This is a great paper. I think the labor force participation rate could converge toward its pre-pandemic trend line faster than envisioned in this paper. The paper ignores asset markets altogether, and it seems clear to me that rapidly inflating retirement accounts in 2021 was a big part of this story. Towards the tail end of the time period covered in this paper, retirees met the unwelcome duo of rapidly decreasing asset prices and rapidly increasing consumer prices. This might or might not bring people in their 60s or 70s out of retirement, but it will almost surely slow the exit rate of those aged 40-60, and it might also bring back into the labor force some people in that age range who are currently sitting out."